EXHIBIT 10.3.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF REGISTRATION UNDER SAID ACT AND ALL OTHER APPLICABLE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
$4,500,000 No. _______
ODIMO ACQUISITION CORP.
SUBORDINATED SECURED PROMISSORY NOTE
December 6, 2002
1. GENERAL. For value received, and subject to the terms hereof, Odimo
Acquisition Corp., a Delaware corporation ("Payor"), hereby promises to pay to
the order of GSI Commerce Solutions, Inc., a Delaware corporation ("Payee"), the
principal amount of FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($4,500,000).
This subordinated secured promissory note (the "Note") is being delivered by
Payor to Payee in partial consideration for the purchase by Payor of certain
assets pursuant to the terms of a certain Asset Purchase Agreement (the
"Agreement"), dated as of the date hereof, between Payee and Payor. All
capitalized terms not defined herein shall have the meanings ascribed to them in
the Agreement.
2. PAYMENT OF PRINCIPAL. The principal balance of this Note shall be
due and payable in twenty (20) equal consecutive quarterly installments of Two
Hundred Twenty-Five Thousand Dollars ($225,000) each, the first such installment
due March 31, 2003 and the final such installment due on December 31, 2007.
3. PAYMENT OF INTEREST. Except as otherwise provided herein, interest
shall accrue from the date hereof on any unpaid principal balance of this Note
at the rate of seven percent (7%) per annum. Upon the occurrence of an Event of
Default (as defined below), interest shall accrue on any unpaid principal
balance of this Note at the rate of eighteen percent (18%) per annum during the
period of such Event of Default. Interest accrued as of the date of each payment
of principal shall be paid together with each payment of principal. The said
interest at said rates shall be paid and continue to be paid even after default,
maturity, acceleration, recovery of judgment, bankruptcy, insolvency proceedings
of any kind or the happening of any event or occurrence similar or dissimilar.
4. PLACE OF PAYMENT. Any and all amounts payable by Payor to Payee
hereunder shall be made in immediately available funds and shall be paid at 0000
Xxxxx Xxxxxx, Xxxx xx Xxxxxxx, XX 00000, Attn: Chief Financial Officer, or at
such other address of which Payee shall give written notice to Payor.
5. SECURITY AGREEMENT. This Note has been issued pursuant to and in
accordance with the terms and conditions of the Agreement, is secured by a
certain Security Agreement and a certain Patents, Trademarks, Copyrights and
Licenses Security Agreement (collectively, the "Security Agreement") of even
date herewith granted by Payor in the Collateral (as defined therein) and is
subject to and governed by the terms and conditions of the Agreement and the
Security Agreement.
6. SUBORDINATION.
(a) Payor hereby agrees, and Payee by its acceptance agrees,
that except with respect to the Specified Collateral (as defined in the Security
Agreement) and Proceeds (as defined in the Security Agreement) thereof, the
payment of this Note is hereby expressly made subordinate and junior in right of
payment to the prior payment of an aggregate amount of Senior Debt (as hereafter
defined) of Payor equal to an amount not to exceed the Permitted Senior Debt
Amount (as hereafter defined). For purposes of this Note: (i) "Senior Debt"
shall mean the principal of and interest on indebtedness incurred by Payor after
the date of this Note for money borrowed from an FDIC insured bank or other
financial institution to fund Payor's working capital requirements; (ii)
"Permitted Senior Debt Amount" shall mean an amount equal to 50% of the value of
Payor's Eligible Inventory (as hereafter defined), valued at the lower of cost
or market on a basis consistent with Payor's historical accounting practices;
and (iii) "Eligible Inventory" shall mean inventory to which Payor has good and
valid title, consisting of first quality finished goods held for sale in the
ordinary course of Payor's business, excluding goods that are obsolete or slow
moving, custom items, work-in-process, raw materials, or goods that constitute
spare parts, packaging and shipping materials, supplies used or consumed in
Payor's business, defective goods, or inventory acquired on consignment. Payor
will notify Payee in writing within five (5) days of the incurrence of such
Senior Debt.
(b) The provisions of this Section 6 are for the purpose of
defining the relative rights of the holders of Senior Debt and Payee against
Payor and its property. Nothing herein shall impair, as between Payor and Payee,
the obligation of Payor to pay to Payee the amounts due under this Note in
accordance with the terms and the provisions hereof; nor shall anything herein
prevent Payee from exercising all remedies otherwise permitted by applicable law
upon default under this Note.
7. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default hereunder ("Event of
Default"):
(a) Failure of Payor to pay the principal of or interest on
this Note, when and as the same shall become due and payable and such failure
continues unremedied for five (5) business days.
(b) The material default, breach or violation of Payor in the
performance or observance of any of the other covenants, agreements,
representations, warranties or conditions of Payor contained in this Note and
such material default, breach or violation continues unremedied for a period of
fifteen (15) days following the occurrence thereof.
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(c) The occurrence of (i) an Event of Default under the
Security Agreement securing this Note, (ii) an event of default under the
documents evidencing the Senior Debt or any other indebtedness of Payor, and/or
(iii) an event which would constitute a default under the documents evidencing
the Senior Debt or any other indebtedness of Payor, but for the waiver of such
default by the holder of Senior Debt or such other indebtedness.
(d) The material default, breach or violation of Payor in the
performance or observance of any of the covenants, agreements, representations,
warranties or conditions of Payor contained in the Agreement.
(e) Default by Payor or any subsidiary beyond any cure period
provided with respect thereto in the payment of principal of or interest on any
indebtedness of Payor or any subsidiary or in the performance or observance of
any other material obligation, term or condition under such indebtedness or
failure to promptly pay such indebtedness when due and payable, unless such
holder shall have waived in writing such default or non-payment after its
occurrence or unless such holder shall have failed to give any notice required
to create a default thereunder.
(f) The admission in writing of Payor or any subsidiary
representing at least 10% of Payor's consolidated assets or revenues ("Material
Subsidiary") of its inability to pay its debts generally as they become due.
(g) Filing by Payor or any Material Subsidiary of a petition
in bankruptcy or a petition to take advantage of any insolvency act.
(h) The making by Payor or any Material Subsidiary of an
assignment for the benefit of its creditors.
(i) The consent by Payor or any Material Subsidiary to the
appointment of a receiver of itself or of the whole or any substantial part of
its property.
(j) Adjudication of Payor or any Material Subsidiary as
bankrupt on a petition in bankruptcy filed against it which is not dissolved
within sixty (60) days.
(k) Filing by Payor or any Material Subsidiary of a petition
or answer seeking reorganization or arrangement under the federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state thereof.
(l) Entry of an order, judgment or decree by a court of
competent jurisdiction appointing, without the consent of Payor or any Material
Subsidiary, a receiver of Payor or any Material Subsidiary or of the whole or
any substantial part of its property, or approval of a petition filed against it
seeking reorganization or arrangement of Payor or any Material Subsidiary under
the federal bankruptcy laws or any other applicable law or statute of the United
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States of America or any state thereof, if such order, judgment or decree is not
vacated or set aside or stayed within sixty (60) days from the date of entry
thereof.
(m) Assumption of custody or control of Payor or any Material
Subsidiary or of the whole or any substantial part of its property by any court
of competent jurisdiction, under the provisions of any other law for the relief
or aid of debtors, if such custody or control is not terminated or stayed within
sixty (60) days from the date of assumption of such custody or control.
8. REMEDIES. Upon the occurrence of an Event of Default hereunder, in
addition to all other rights, remedies and powers of Payee under this Note or
otherwise available at law or in equity, Payee may, at its option, without
notice, declare the outstanding principal balance and interest immediately due
and payable in full without further notice to or demand on Payor of any kind,
including without limitation, presentment, demand or notice of demand, protest
or notice of protest, notice of nonpayment or dishonor and all other notices or
communications in connection with the delivery, acceptance, performance, default
or enforcement of payment of this Note, all of which are hereby waived by Payor.
Payor also hereby waives all notice or right of approval of any extensions,
renewals, modifications or forbearances which may be allowed.
9. CONFESSION OF JUDGMENT. PAYOR IRREVOCABLY AUTHORIZES AND EMPOWERS
ANY PROTHONOTARY, CLERK OF COURT OR ANY ATTORNEY OF ANY COURT OF RECORD TO
APPEAR FOR PAYOR IN SUCH COURT AT ANY TIME AND (1) TO CONFESS JUDGMENT AGAINST
THE PAYOR FOR ALL OR ANY PART OF THE OBLIGATIONS HEREUNDER AND ALL SUCH COSTS,
EXPENSES AND INTEREST TOGETHER WITH AN ATTORNEY'S COMMISSION OF 5% OF THE AMOUNT
SO CONFESSED, AND/OR (2) TO ENTER JUDGMENT AGAINST PAYOR AND IN FAVOR OF PAYEE
IN ANY ACTION FOR REPLEVIN OR OTHER ACTION OR ACTIONS TO RECOVER POSSESSION OF
ANY COLLATERAL SECURING THIS NOTE. IF A COPY OF THIS AGREEMENT, VERIFIED BY
AFFIDAVIT OF AN OFFICER OF PAYEE SHALL BE FILED IN ANY PROCEEDING OR ACTION
WHEREIN JUDGMENT IS TO BE CONFESSED, IT SHALL NOT BE NECESSARY TO FILE THE
ORIGINAL HEREOF AND SUCH VERIFIED COPY SHALL BE SUFFICIENT WARRANT FOR ANY
ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR AND CONFESS JUDGMENT AGAINST THE
PAYOR AS PROVIDED HEREIN. JUDGMENT MAY BE CONFESSED FROM TIME TO TIME UNDER THE
AFORESAID POWERS WHICH SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF. ALL
CONFESSIONS OF JUDGMENT SHALL BE WITH RELEASE OF ERRORS, WAIVER OF APEALS,
WITHOUT STAY OF EXECUTION AND PAYOR WAIVES ALL RELIEF FROM ANY AND ALL
APPRAISEMENT OR EXEMPTION LAWS NOW IN FORCE OR HEREAFTER ENACTED. IT IS HEREBY
ACKNOWLEDGED THAT THE CONFESSION OF JUDGMENT PROVISIONS HEREIN CONTAINED WHICH
AFFECT AND WAIVE CERTAIN LEGAL RIGHTS OF THE PAYOR HAVE BEEN READ, UNDERSTOOD
AND VOLUNTARILY AGREED TO BY THE PAYOR.
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10. NOTICES. All notices and other communications required or permitted
under this Note shall be made in accordance with the provisions of the
Agreement.
11. INTEREST SAVINGS CLAUSE. If any interest payment due hereunder is
determined to be in excess of the then legal maximum rate, then that portion of
each interest payment representing an amount in excess of the then legal maximum
rate shall instead be deemed a payment of principal and applied against the
principal of the obligations evidenced by this Note.
12. AMENDMENTS AND WAIVERS. This Note may be amended, modified or
supplemented by the parties hereto, provided that any such amendment,
modification or supplement shall be in writing and signed by both Payor and
Payee. No waiver with respect to this Note shall be enforceable against Payee
unless in writing and signed by Payee. Except as otherwise expressly provided
herein, no failure to exercise, delay in exercising, or single or partial
exercise of any right, power or remedy by Payee, and no course of dealing
between the parties, shall constitute a waiver of, or shall preclude any other
or further exercise of the same or any other right, power or remedy.
13. SUCCESSORS AND ASSIGNS. This Note shall be binding upon the parties
and their respective successors and assigns. Payor shall not in any manner
assign any of its rights or obligations under this Note without the express
prior written consent of the holder of this Note. Payee shall not in any manner
assign any of its rights under this Note to (i) any of the competitors of Payor
listed on SCHEDULE 13, (ii) any entity with which Payor has engaged in
litigation of a material nature which is set forth on SCHEDULE 13, or (iii) any
entity with which Payor engages, during this term of this Note, in litigation of
a material nature; provided, however, that this restriction shall only be
effective upon written notice by Payor to Payee of any such entity.
14. RIGHT OF FIRST OFFER. Payee agrees that prior to offering this Note
for sale to a third party, Payee shall offer this Note to Payor in accordance
with the following provisions:
(a) Payee shall notify (the "First Offer Notice") Payor in
writing of (i) its intention to offer this Note for sale, and (ii) the price and
terms upon which it proposes to offer this Note.
(b) Within ten (10) days after receipt of the First Offer
Notice, Payor may elect to purchase this Note at the price and on the terms
specified in the First Offer Notice.
(c) If Payor elects not to purchase this Note, or if Payor
does not make any election within such ten (10) day period with respect to the
purchase of the Note, Payee may sell this Note to any third party at any price
which is not less than the price specified in the First Offer Notice and upon
terms which are not less favorable than the terms specified in the First Offer
Notice, and neither Payee nor the acquiror of this Note shall have any further
obligations under this Section 14 with respect to this Note; provided, however,
that any such sale of this Note to a third party must occur within one hundred
twenty (120) days after Payor's election not to purchase this Note or the
expiration of the applicable ten (10) day period, as the case may be.
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(d) If Payee desires to sell this Note at a price which is
less than the price specified in the First Offer Notice or upon terms which are
less favorable than the terms specified in the First Offer Notice, Payee shall
notify Payor in writing of the price and terms upon which it proposes to offer
this Note in accordance with Section 14(a) of this Note and such notice shall
constitute a new First Offer Notice hereunder.
15. SEVERABILITY. If any provision of this Note is construed to be
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
16. EXPENSE OF ENFORCEMENT. In the event Payee takes any action to
enforce its rights hereunder or under the Security Agreement, Payor will
reimburse Payee for all expenses incurred in connection therewith, including,
without limitation, reasonable attorneys' fees, appraisal fees, accounting fees,
copying costs and travel and lodging expenses.
17. SECTION HEADINGS. The section and subsections headings in this Note
are for convenience of reference only, do not constitute a part of this Note,
and shall not affect its interpretation.
18. CONTROLLING LAW. This Note is made under, and shall be construed
and enforced in accordance with, the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of law. EACH OF THE PARTIES (A) IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF PENNSYLVANIA, IN ANY AND
ALL ACTIONS BETWEEN OR AMONG ANY OF THE PARTIES, WHETHER ARISING HEREUNDER OR
OTHERWISE, (B) IRREVOCABLY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY SUCH ACTION,
AND (C) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS BY FIRST CLASS CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO THE ADDRESS AT WHICH SUCH
PARTY IS TO RECEIVE NOTICE PURSUANT TO THE PROVISIONS OF THE AGREEMENT.
ATTEST: ODIMO ACQUISITION CORP.
/s/ Xxxxx Xxxxxxxxxx By: /s/ Xxxx Xxxxxx
--------------------------------- ------------------------------------
Name: Xxxxx Xxxxxxxxxx Name: Xxxx Xxxxxx
Title: Secretary Title: President
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SCHEDULE 13
Competitors of Payor
o Mondera Inc.
o ICE, Inc.
o Blue Nile, Inc.
Adverse Parties
o See attached.
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